RETAIL ALERT | What we learned from Home Depot’s and Lowe’s Q1 Earnings Reports | May 24, 2023

Home Depot and Lowe’s announced their first-quarter earnings last week, and we take a look at some of the key highlights.

Making headlines:

• After growing sales by more than $47 billion over the past three years, Home Depot experienced its biggest revenue miss in more than 20 years. The company missed sales expectations for the second consecutive quarter.
• Lowe’s earnings beat revenue expectations for the quarter, posting $22.35 billion in sales versus $21.6 billion expected.
• Both companies said their results were impacted by a pullback on discretionary spending, particularly among DIY shoppers.
• Lowe’s is looking to expand its farm and ranch pilot program to approximately 300 stores to take advantage of its competitive strength in rural markets. Assortments will include a greater focus on pets, livestock feed, fencing, trailers, and even ATVs, with the goal of being the one-stop-shop solution for rural homeowners.

Comps – by the numbers:

Both companies reported lower transactions and average tickets that were heavily impacted by both a 64% decrease in year-over-year lumber prices and extreme weather conditions in the western U.S.

• Home Depot’s U.S. comps decreased by 4.6% for the quarter, with an average ticket increase of 0.2% being offset by a decline in transactions of 5.0%. Deflation from core commodity categories negatively impacted the average ticket by approximately 335 basis points, with framing lumber representing 220 basis points of the total.
• Comp sales at Lowe’s declined 4.3%, with declines in both average ticket (-0.3%) and transactions (-4.0%). However, this is the first time in more than two years that Lowe’s outperformed Home Depot in same-store-sales results.

Projects are getting smaller:

Depot executives said that external data points suggest that home improvement projects are changing from large-scale remodels to smaller ones, or that homeowners are dividing up larger projects into smaller chunks.

• Big-ticket comp transactions ($1,000+) were down -6.5% at Home Depot.
• Comps on tickets of $500 or more declined by -7.7% at Lowe’s.

Lowe’s continues to make strides with Pros.

• DIY customers outperformed Pros at Home Depot; however, both groups saw sales declines in the quarter.
• Pro volume increased at Lowe’s in the quarter, following 22% growth last year. The company expects Pro sales to outpace DIY sales for the remainder of the year.
• Lowe’s reported that 75% of small-to-medium Pros – their core Pro customer – are still reporting a healthy backlog of business.

Digital sales send a mixed signal.

• Sales leveraging Home Depot’s digital platforms decreased 2.9% while Lowe’s reported an increase in online sales of 6.2%.
• Lowe’s said that their online sales increase is a result of the investments they have been making in their new online Pro Business tools, including online order quoting and order tracking.

The outlook

Both companies agree that the overall structural drivers for the home improvement category remain positive. That said, both companies lowered their outlook for the year.

• Home Depot lowered its fiscal year guidance from roughly flat for the year to a comp sales decline between 2% and 5%.
• Lowe’s is now projecting annual comp declines between 2% to 4% versus a previous guidance of flat to down 2%.
• Lowe’s projects their second quarter volume will be on the higher end of their guidance, partly due to an anticipated $250 million benefit from weather-related Spring purchases.

What this means for you:

• With traffic down, it’s important to leverage every transaction. Look for incremental sales opportunities through multipacks or side stacks. And make sure store associates are properly trained on your products so they can help advocate for your brand.
• Look to innovation to appeal to new customers, trade up existing customers, or increase price points.
• Communicate the unique value your products bring customers – what are their problems, and how do you create an added-value solution?